In my 2014 article Hedge Fund Tales – Or What Is Wrong With Merger, I discussed merger arbitrage deals gone bad and risk management aspects of the merger arbitrage strategy. Dedicated merger arbitrage investors and fund managers face a trade-off between managing a diversified portfolio of merger arbitrage deals and remaining with mediocre and pathetic returns. Or, investing more selectively, taking larger positions, and as a result increasing overall risk of the portfolio. But what are the alternatives? Is it possible to enjoy the best of both worlds – profit from deals activity and arbitrage opportunities while improving on a standard merger arbitrage dedicated portfolio?

Warren Buffet and merger arbitrage

One can get a valuable insight on the topic of merger arbitrage from Warren Buffett. Although known mainly for conservative, long-term value investments, he made some handsome profits in the past doing merger arbitrage deals. In his 1988 annual letter to shareholders, Warren Buffett explained that Berkshire Hathaway Inc's arbitrage activities are different than tho......................